Members of the badly fractured California Public Utilities Commission (CPUC) cracked heads again Tuesday during an all-day hearing on a proposed core/noncore electricity market for the state that included presentations from two-dozen industry stakeholders and academics. The public exchanges underscored the continuing sharp difference of opinion on what direction the state’s energy policy should take three years after the crisis of 2000-2001.
Many critics of proposals to move to the core/noncore structure and for a return to increased retail competition, albeit among the largest power users, repeatedly reminded CPUC commissioners that Tuesday was the 10th anniversary of the regulatory commission’s now infamous “Blue Book,” a staff analysis of electric industry restructuring that kicked off a two-year planning process that ultimately resulted in the state legislature unanimously passing the 1996 electric restructuring law (AB 1890) that is now widely criticized as a failure.
CPUC President Michael Peevey, who was then starting a successful energy services business as an entrepreneur, argued that today’s situation is different and California is not about to recreate another failed deregulation effort.
“Everybody got something out of AB 1890,” Peevey said at the conclusion of the hearing in San Francisco.”Think of our friends at Edison and PG&E. One got five billion dollars in stranded costs and the other four billion dollars. And they went out and invested very wisely all over America.” The latter reference drew laughter, being offered tongue-and-cheek to reflect the fact that PG&E’s nonutility business unit is now severed from the company and in Chapter 11 bankruptcy, and Edison International’s nonutility businesses are still struggling under a mountain of debt.
“[Regardless], everybody was going along just fine for two years under [electricity restructuring] until the late summer and early fall of 2000,” said Peevey, citing a paper by one of Tuesday’s panelists, James Bushnell, head of the Energy Instituteat the University of California, Berkeley, who completed a study of what went wrong with AB 1890. His study cited the utilities’ and regulators’ failure to get long-term power supply deals completed, and the regulators’ failure to grant timely rate increases to cover the utilities’ skyrocketing wholesale energy costs.
Commissioner Carl Wood, who is one of two remaining members of the CPUC from during the crisis, took strong exception to Peevey’s remarks and proceeded to warn that the state is about to embark on another of what he called a “disaster” tied to the failed notion that retail competition can work in the electricity industry.
Noting that Peevey’s remarks “certainly provoked” him, Wood said he didn’t want to talk about what the CPUC “did or did not do during the crisis,” but he disagreed with Peevey about the track record in other states and nations regarding retail customer choice.
“California is not the only place that experienced a disaster,” Wood said. “Montana comes to mind. It experienced a disaster worse than ours, and they are still trying to dig out of it. And I wouldn’t want to hold up Australia’s markets as anything we would like to see in our own wholesale markets. They have experienced wild fluctuations in prices.
“The experience around the world can generally be summed up as being that they haven’t led to disasters like we had here in California, but in no case have customers — especially small customers — benefited.”
Peevey said blame for California’s past power industry failures can be “shared by many, but it certainly wasn’t the fault of the Blue Book.” He said California has remained too parochial, ignoring other states and nations that have direct access operating fairly successfully.
“The reason that the issue of direct access keeps coming back is attributable to the ‘power of an idea,'” said Peevey, noting that he is willing to proceed much more cautiously this time in advocating direct access. “In a democracy people believe in choice; we have choice in all other venues of our life, or try to. Why not here? What is so unique about electricity that it can’t work? At the end of the day, we ought to be able to devise mechanisms and means to give people choice here, too.”
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